Government is expected to use foreign sovereign reserves and a suit of domestic bonds listing to finance huge budget deficit envisaged in the 2010/ 2011 financial yearÔÇöprompted by the urge to push key projects to completion.
Finance and Development Planning Minister, Kenneth Matambo, said Monday that government will run a P 12 billion deficit that will be financed by the designed stimulus package plan aimed at completing major projectsÔÇömainly under the Ministry of Minerals, Energy and Water Affairs.
Over 2010/11 financial year total grants and revenues are forecast at P 27 billion while expenditure is estimated to top P 39 billion- leaving a hole of P12 billion that needs to be filled up.
┬á“The net result is budget deficit amounting to P12.118 billion, which is 12.2 percent of forecast 2010/11 GDP of P99.70 billion.
“The deficit will be financed by a combination of drawing down on government’s cash balances, which were accumulated in surplus years and by borrowing largely on the domestic capital market,” he revealed.
The envisaged deficit in the second one running┬á after last year’s budget deficit that is largely attributed to the international economic crisis ┬áthat dominated the news last year- leading to ┬ásluggish demands of the mineral┬á exportsÔÇöespecial diamonds.
Diamonds are the backbone of Botswana’s economy accounting for over 40 percent of the GDP but their prices collapsed by over 60 percent between 2008 and early 2009. However, the situation has somehow improved as the major selling houses are reporting a 10 percent improvement.
The planned stimulus package is expected to benefit the local bourse as it will fall in line with government’s policy of developing the capital markets in the country that was started at the opening of the century.
Last year, government once again tried to prop up the capital markets by issuing┬ágovernment bonds and short term treasury bills whose existence will now facilitate the domestic financing of a portion of deficits for the current and coming financial years.
“Details of the March 2010 bond issue, in keeping with the programme already approved by parliament, will be announced by the Bank of Botswana shortly. An updated bond issuance programme will be prepared for consideration by parliament in the July session,” Matambo further revealed.
The budget,┬ádelivered under the theme “transforming the economy after the crisis: 2010 and beyond” is expected to be praised by commercial banks, insurance companies and ┬ápension fund managers who are stuck with billions of cash seeking and actively looking for ┬áinvestment ┬áopportunities.
Last year, government hopped to international financiers at the expense of the local monied houses.
Further, the current ┬ábudget is also expected to get some support from Botswana Confederation of Commerce Industry and Manpower (BOCCIM) as its deficit is largely influenced by meaningful projects rather than public works programme aimed at creating some phony jobs.
Last year, public works (Ipelegeng) was credited with having created over 60,000 phony jobs with little impact on the economy of the country.
Matambo noted that the budget deficits for the current financial year and 2010/11, which are the first two years of NDP 10, will together absorb most of the approved deficit for the entire NDP 10.
“It follows that in order to comply with parliament’s NDP 10 mandate, adjustments must be made to ensure that there is a balanced budget for the remaining reduction of expenditure in the financial years 2011/12 and 2012/13, while revenues recovered over those two years, to the point that we achieve a balanced budget in 2012/13.”
“This will restore sustainability in our public finances over the medium term. Then in the remaining years of NDP 10 a modest surplus would be run to comply with the NDP 10 mandate,” he maintained.
The lion’s share goes to the Ministry of Minerals with P 3.5 billion for the power development, rural water development and the development of dams, namely Dikgathong, Lotsane and Thune.
The Ministry of Transport will get P2.1 billion to fast track the controversial airports that are lagging behind schedule and the road networks and Botswana Telecommunication. Others will be the Ministry of Local Government to finance┬ávillage road networks, including the wasteful Ipelegeng scheme.
Other money from the stimulus package will be pumped into the┬áMinistry of Education and the Ministry of Defence, Justice and Security to bankroll the Directorate of Intelligence Security (DIS) among others.
The other ministries, however, share the remaining 20, 3 percent of the recommended budget.